Mortgage rates fell this week, resuming a downward trend and erasing most of last week’s increase.
Waning economic indicators and fears that the Federal Reserve may go too far in its battle against inflation are likely driving the decline. New data from the PCE price index and the employment cost index show inflation is decelerating. But the economy is slowing, too. The large slowdown in domestic consumption at the end of 2022, continued weakness in manufacturing, lower than expected job growth, and declining consumer confidence all act to raise recession risk. The Federal Reserve’s decision to increase its benchmark interest rates by 25 basis points today and to telegraph a higher terminal rate was mostly anticipated by investors, likely reinforcing predictions for further decline in economic activity. Higher short-term rates generally push long term rates up. But because the risk of recession has increased, longer-term rates like 10-year treasury bonds and 30-year fixed mortgage rates are falling.
Upcoming releases on wage growth, the services industry and inflation expectations are likely to keep mortgage rates volatile, but additional signs of weakness in economic data should continue to apply downward pressure